Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc.

Upholding an award of more than $180,000 in attorneys’ fees under the California Uniform Trade Secret Act (CUTSA) for bringing a bad faith misappropriation claim, the California Court of Appeal found that “Cypress filed a complaint that was . . . meritless on its face, based upon theories of liability that were not merely specious, but nonsensical. The apparent purpose of the lawsuit was to cow Maxim, and perhaps other competitors, into refraining from conduct in which . . . they had every right to engage.” Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc., No. H038555, 2015 WL 1911121 (Cal. Ct. App., Apr. 28, 2015) (Rushing, J.

Cypress and Maxim compete in the area of touchscreen technologies. After written exchanges accusing Maxim of poaching Cypress’s employees, in 2011 Cypress filed suit against Maxim for misappropriation of trade secrets and unfair competition. The complaint alleged that “Maxim has used a headhunter to repeatedly target Cypress’s touchscreen employees, apparently using improperly obtained confidential information regarding Cypress touchscreen employees to do so.” After filing its complaint, Cypress sought a temporary restraining order barring Maxim from soliciting its touchscreen employees and seeking the return of any trade secrets. The parties ended up stipulating to not solicit each other’s employees for 30 days.

Pursuant to CUTSA, Maxim demanded identification of the specific trade secrets at issue. Cypress initially failed to respond, and Maxim filed a demurrer.

Undeterred, Cypress filed an amended complaint that differed little from the original and shortly thereafter identified its trade secrets as “1. A compilation or list of Cypress employees who worked with Cypress’s touchscreen technology and products area and their employee information, including contact information,” and “2. Cypress’s substantive confidential information regarding its proprietary touchscreen technology and high performance products.”

Maxim’s second demurrer followed. It attached a declaration showing that the identities of 93 Cypress touchscreen employees were publically known and available via web sites and patent office records. About a week later, Cypress filed a request to dismiss the case without prejudice.

Maxim moved for and was awarded attorneys’ fees pursuant to CUTSA, which provides that “[i]f a claim of misappropriation is made in bad faith . . . the court may award reasonable attorney’s fees and costs to the prevailing party.” Cypress appealed, urging that Maxim was not the prevailing party and that Cypress had not acted in bad faith.

The California Court of Appeal, Sixth District, disagreed. Holding that Maxim was the prevailing party, the Court of Appeal rejected Cypress’s argument that it dismissed the case because Maxim had stopped soliciting its touchscreen employees and because it was not able to obtain third-party discovery from the headhunter Maxim had hired. Instead, the Court of Appeal found that “[t]he only plausible explanation for Cypress’s dismissal of the action is that it feared a determination on the merits. Had Maxim’s demurrer been heard, it would almost certainly have been sustained . . . . Maxim, in contrast, walked away with all of the rights it had when it was served with the complaint . . . .”

On the question of bad faith, the Court of Appeal reviewed the trial court’s findings for sufficiency of evidence under the “objectively specious standard,” a standard where a prevailing party need only “point to the absence of evidence of misappropriation in the record.” It found that Cypress’s complaint was “nonsensical” and unsupported by any evidence of misappropriation, adding “[i]t bears emphasis that despite the repeated references to ‘unfair’—not illegal—hiring practices, Cypress at no time pointed to any information whatevertending to show that Maxim was doing anything more than seek the most qualified candidates for openings in its own enterprise.”

The Court of Appeal also found that Cypress engaged in litigation misconduct from which dilatory and oppressive intent could be inferred, including filing an amended complaint that hardly differed from the original and doing so at the last minute.